U.S. President Barack Obama yesterday (Tuesday) nominated Bernanke for a second four-year term as chairman of the U.S. Federal Reserve. The appointment was mildly controversial and must be approved by the Senate, but lawmakers and investors overwhelmingly approved of the decision to the central bank chief who has shepherded the U.S. economy though its worst financial crisis in more than 70 years.

Bernanke has been criticized for greatly expanding the powers of the U.S. central bank by bailing out large financial institutions like American International Group Inc. (NYSE: AIG) and The Bear Stearns Cos. – while letting Lehman Bros. Holdings Inc. (OTC: LEHMQ) collapse. At the same time, however, ambitious Fed programs designed to recapitalize banks and unfreeze credit markets have succeeded.

“Ben Bernanke, has led the Fed through the one of the worst financial crises that this nation and this world have ever faced,” said President Obama.  “As an expert on the causes of the Great Depression, I’m sure Ben never imagined that he would be part of a team responsible for preventing another. But because of his background, his temperament, his courage, and his creativity, that’s exactly what he has helped to achieve.”

Of course, that doesn’t mean Bernanke’s greatest challenges are already behind him. Over the next few years, the Fed chairman will have to unwind the programs he set in place to backstop the markets – such as the Commercial Paper Funding Facility – which holds $109.2 billion in short-term IOUs issued by corporations – and the Term Asset-Backed Securities Loan Facility (TALF) – which has lent $25 billion to investors to buy securities tied to auto and other consumer and business loans.

In all, Bernanke has injected more than $2 trillion into the U.S. financial system. He’s also lowered the Federal Reserve’s benchmark lending rate to a record low range of 0.00%- 0.25%.

As a result, the U.S. monetary base has about doubled during the past two years.

Earlier this month, Bernanke said that the central bank’s program to buy U.S. Treasury securities would be shut down by the end of October. He’s also pointed out that some of the Fed’s emergency lending facilities automatically wind down as the economy recovers, because they have onerous pricing and terms.

The central bank could undertake two key steps to accelerate that whole process. It could:

• Increase the amount of interest paid on balances held at the Federal Reserve by depository institutions (banks).
• Sell securities from the Federal Reserve’s portfolio with the agreement to buy them back at a later date.

However, Bernanke has provided very few clues about what his so-called “exit strategy” will involve, or how it will be implemented. That is, at what point will inflation become enough of a concern, and at what point does U.S. growth become sustainable enough, to warrant a change in Fed policy?

And that could easily prove to be Bernanke’s next big challenge.

At some point, Bernanke will have to raise the Fed’s benchmark rate from its current record low range. But it’s almost a classic Catch 22: Doing so too soon could stall the fragile U.S. economic recovery; waiting too long to boost rates could allow ruinous inflation to take hold, resulting in a major spike in the cost of food, energy and other essentials.

In this sense, “policymakers are damned if they do and damned if they don’t,” said Nouriel Roubini, a professor at the Stern Business School at New York University who is often credited with predicting the financial meltdown.

“If they take large fiscal deficits seriously and raise taxes, cut spending and mop up excess liquidity soon, they would undermine recovery and tip the economy back into stag-deflation (recession and deflation),” Prof. Roubini said. “But if they maintain large budget deficits, bond-market vigilantes will punish policymakers. Then, inflationary expectations will increase, long-term government bond yields would rise and borrowing rates will go up sharply, leading to stagflation.”

Part of the reason Obama is seeking to reappoint Bernanke is that another Fed chairman could disrupt the markets if he or she were to deviate from the path Bernanke has set.

“Wall Street can breath a little easier,” Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. (NYSE ADR: MTU), told Bloomberg News. “Having a new chairman come in at this late date would put the Fed-engineered solution to both the recovery and the exit strategy at risk.”

Government officials told reporters that White House Chief of Staff Rahm Emanuel, U.S. Treasury Secretary Timothy F. Geithner, and National Economic Council Chairman Lawrence H. Summers all recommended that Obama reappoint Bernanke.

And Summers, the former president of Harvard University, had been the leading candidate to replace Bernanke as chairman of the Fed.

Bernanke’s Political Challenges

Putting the economy back on the path to solid and sustainable growth won’t be Bernanke’s only task, either. In the years ahead, he will have a large role in the Obama administration’s push to overhaul financial market regulation.

“Looking forward, we must urgently address structural weakness in the financial system, in particular in the regulatory framework, to ensure that the enormous costs of the past two years will not be borne again,” Bernanke said earlier this week.

Obama’s plan puts Bernanke and the Federal Reserve in an awkward position. The plan broadly expands the central bank’s authority in dealing with systemic risks – such as the growth of reckless mortgage lending or the misuse of financial derivatives – by essentially giving the central bank the power to oversee from top to bottom almost any financial company in the country, including a firm’s foreign affiliates.

However, that would make Bernanke an even bigger target for members of Congress who believe the Fed already has too much power, and was far too cozy with banks and Wall Street firms as the mortgage crisis was building.

“Why does the Fed deserve more authority when institutionally it seemed to have failed to prevent the current crisis?” U.S. Sen. Christopher J. Dodd, D-CT, asked last month.

It’s possible that Bernanke will face similar questions at his upcoming confirmation hearing.

“I expect many serious questions will be raised about the role of the Federal Reserve moving forward and what authorities it should and should not have,” Sen. Dodd told The Wall Street Journal yesterday.

Despite these concerns about the expanding authority of the Fed, Sen. Dodd did support Bernanke’s reappointment.

“While I have had serious differences with the Federal Reserve over the past few years, I think reappointing chairman Bernanke is probably the right choice,” Dodd said. “Chairman Bernanke was slow to act during the early stages of the foreclosure crisis, but he ultimately demonstrated effective leadership and his reappointment sends the right signal to the markets.”

It was Bernanke’s slowness to act early on that may actually cost the Fed some of its powers. While Obama’s plan generally increases the role of the Fed, it also calls for the creation of a new, independent regulatory agency. That agency would write rules related to mortgages, credit cards and other consumer products, taking away powers previously held by the central bank.

Bernanke has acknowledged that the Fed underestimated the seriousness of the financial crisis at the outset – including the danger posed by subprime mortgage lending – but remains reluctant to relinquish the Fed’s role as a consumer advocate.

“We think the Fed can play a constructive role in protecting consumers,” Bernanke told members of the House Financial Services Committee last month.

Indeed, Bernanke’s response to the financial crisis – and what he does to keep the U.S. economy from relapsing – will play two vital roles: It will shape Bernanke’ s financial-crisis legacy; and it will help determine the future role of the Federal Reserve.

“This last couple of years has been clearly a move through uncharted territory, and as we’ve seen it’s taken a lot of unconventional moves to try to deal with the situation,” Robert Parry, former president of the San Francisco Fed, told Bloomberg. “There’s been a lot of innovation that’s gone on, and it seems to me that much of it has been successful.”

Source: With Reappointment in the Bag, Fed Chairman Ben Bernanke Turns to Face Troublesome New Challenges

Bear in mind that each new economic report, earnings statement, news report or trading session represents a new opportunity for fear and uncertainty to reemerge.

Fortunately, next week’s economic calendar remains quite light, although retailers may just weigh in with “doom-and-gloom” holiday predictions.  Earnings season may be weak as well (with even more pessimistic outlooks), so investors should not overreact even if Texas Instruments Inc. (TXN), Halliburton Inc. (HAL), Amazon.com Inc. (AMZN) and others fail to meet expectations.  Volatility should continue and the days of triple-digit index moves (often up and down in the same day) may be here for a while.

So try not to get so overwhelmed with the seemingly never-ending challenges and uncertainties: The credit crisis, weak economy, plunging stock market, presidential election, etc.  Take everything one day at a time. The government actions are starting to thaw out the credit concerns and lending/borrowing should return to a somewhat normal level in due time. Declining energy and commodities prices should improve the inflation picture, which will help the consumer and allow the U.S. Federal Reserve to better focus on the struggling economy. Stocks tend to be leading indicators and often begin to rise even when the economy remains in the midst of a recession. The election (regardless of the victor) represents a new beginning, a new direction, a new attitude, and hopefully renewed confidence.

Market Matters

So much for less government.  With the presidential election at the homestretch, the candidates pushed their respective plans to rescue the economy in an attempt to appeal directly to Main Street folks like Joe the Plumber (basically more tax cuts vs. “spread the wealth”).  The bailout moves continued as U.S. Treasury Secretary Henry M. “Hank” Paulson Jr. (a self-proclaimed free-market capitalist, if there ever was one) announced that the government would invest $250 billion into the nation’s banks to stabilize the financial system.  Proponents refused to label it as”nationalization.” But don’t tell that to the pundits on Fox News this past weekend: Some went as far as to question whether the U.S. government is embracing full-fledged “socialization.”

The Federal Deposit Insurance Corp. (FDIC) will be expanding its insurance program on non-interest bearing accounts, a move designed to assist small businesses. Throughout Europe and Asia, similar moves also were approved, as the global efforts appeared to be well coordinated.  The Swiss National Bank took over about $60 billion of bad assets from UBS AG (UBS), leaving the institution with one of the cleanest balance sheets around.  Morgan Stanley (MS) received a $9 billion investment from Mitsubishi Bank UFJ Financial Group Inc.  (ADR: MTU), giving the Japanese giant a 21% interest in one of the last remaining domestic financial super-powers (and at better terms than initially negotiated).  JPMorgan Chase & Co. (JPM) posted an 84% decline in third quarter profits (which still somehow bested analysts’ pessimistic expectations).  Likewise Wells Fargo & Co. (WFC), Citigroup Inc. (C), and Merrill Lynch & Co. Inc. (MER) (still under its pre-Bank of America Corp. (BAC) brand) suffered through “challenging” quarters, to say the least, and their short-term outlooks do not look any better. (Bring on those direct government investments).

While the technology sector struggles from dire expectations of future corporate IT expenditures, eBay Inc. (EBAY), Google Inc. (GOOG), Intel Corp. (INTC) and International Business Machines Corp. (IBM) all announced relatively strong quarters – IBM even “pre-announced” its strong results – and chipmaker Advanced Micro Devices Inc. (AMD) reported a narrower-than-expected loss.

Intel, IBM and AMD were all three topics of Money Morning’s new “Hot Stocks” feature, which chronicles the prospects of companies that are in the news.

Microsoft Corp. (MSFT) apparently still thinks a deal to acquire Yahoo! Inc. (YHOO) would make “economic sense,” though that $33 a share offer most likely would no longer apply for a stock trading below $13 a share.  General Motors Corp. (GM) intensified its merger talks with Chrysler Corp. and continued to explore sale options for its Hummer unit. But does $70 a barrel oil make those cool gas-guzzlers look attractive again?

Speaking of oil prices, the “black gold” plummeted to its lowest level in 13 months as prospects for a recession – or worse – continued to dampen energy demand.  Goldman Sachs Group Inc. (GS) became the first to predict a decline as far as $50 a barrel, ironically just a few months after its analysts called for $200 oil over the next two years.  The 50% percent slide in prices has prompted a panicking Organization of the Petroleum Exporting Countries (OPEC) to schedule an emergency meeting on Friday in Vienna, Austria. It will be the cartel’s 150th meeting. Gas prices are following in step as they pushed downward – in some areas through $3 a gallon, a 25% drop from the $4.11-per-gallon highs set in July.

Even so, as Money Morning reported, Merrill Lynch sees oil at $150 a barrel and gold at $1,500 an ounce, though its analysts provided no time frame.

Volatility continued as triple-digit-daily moves remain the norm.  Last Monday, the Dow Jones Industrial Average broke its eight-day (2,400 point) losing streak with a 936-point gain, its largest ever recorded.  Profit-taking and hedge fund redemptions followed, though bargain hunters reemerged at week’s end (until the final hour of trading).  The limited investor confidence was a welcome sign after the mass hysteria of the past weeks.

The credit markets seem to be slowly (but surely) recovering with the government actions, though some banks remain hesitant to lend and businesses and consumers have been slow to borrow.  Then again, given time, more government just may work.

Economically Speaking

At this point, there should be no real surprises in terms of weak economic data.  However, when September retail sales was reported as down 1.2% (for the third consecutive month) and the Philly Fed survey plunged to its worst showing in 18 years, investors were surprisingly caught off guard.  While the “official” definition of a recession is two consecutive quarters of negative growth, many analysts claim the country is already mired within one’s midst and the numbers will continue to reflect such weakness well into 2009.  The Fed Beige Book depicted that each region of the country is struggling and U.S. Federal Reserve Chairman Ben S. Bernanke did not rule out an additional rate cut at (or before) the Fed’s late October meeting.  Housing starts fell to the lowest level in 17 years and many believe that any recovery must start with a rebound in this long-suffering sector.  In fact, construction activity has plunged over 30% since September 2007.  (Could the next government intervention involve some direct mortgage relief for ailing homeowners?).

Now for some positive news (for a change).  The inflation picture is starting to look more promising as falling energy and other commodity prices begin to work their way through the U.S. economic system.  The wholesale inflation gauge – known a the producer price index, or PPI, fell for the second straight month, and consumer prices remained flat from August as gasoline prices slowly retreated.  Bear in mind, just a few short months ago, inflation was high on the Fed’s radar screen as Bernanke and friends were forced to tackle a weak economy and rising prices.  While the Fed’s “challenges” are far from over, talks of higher rates have disappeared and policymakers can focus all their energies on repairing the sluggish economy. 

Source: Here’s Why the Stock Market Relief of Late Last Week May Not Last

• American retirement plans have lost as much as $2 trillion, or 20% of their value, in the past 15 months, Peter Orszag, head of the Congressional Budget Office estimated yesterday (Tuesday). “Some people will delay their retirement. In particular, those on the verge of retirement may decide they can no longer afford to retire and will continue working,” Orszag said.

• EBay Inc. (EBAY) said yesterday (Tuesday) that it will cut 10% of its work force and spend $1.3 billion to buy online payment and classified companies, in an effort to offset a slowdown in its web auctions business. The reduction is expected to incur restructuring charges of about $70 million to $80 million, but then save $150 million annually.

• Eli Lilly & Co. (LLY) yesterday (Tuesday) announced it will pay $62 million to 32 states and Washington D.C. to resolve an investigation into its marketing practices, The Associated Press reported. Lilly was accused of marketing its top-selling drug Zyprexa for off-label uses and inadequately disclosing the drug’s side effects to health care providers.

• Morgan Stanley (MS) and Japan’s Mitsubishi UFJ Financial Group Inc. (ADR: MTU) have received regulatory approval for the Tokyo-based bank’s $9 billion investment in the Wall Street firm. The U.S. Federal Reserve and other global regulators approved the deal, MarketWatch reported. Morgan Stanley also received antitrust approval from the U.S. government.

• The International Monetary Fund (IMF) predicted a worldwide economic slowdown in a report prepared for a Group of Seven meeting. “The global economy is entering a major downturn,” the IMF said in the report, dated Oct. 4 and obtained by Bloomberg News. “Many advanced economies are now close to recession, while emerging economies are also slowing rapidly.”

• Wells Fargo & Co. (WFC) will likely buy the bulk of Wachovia Corp. (WB) deposits, Reuters reported, citing an unnamed source. Citigroup Inc. (C) is expected to get 20% – 25% of Wachovia’s total deposits, with the remainder going to Wells Fargo, the news service reported, but cautioned that talks are ongoing and no deal has been finalized.

Source: Global Investing Roundups Wednesday, October 8th, 2008

Indeed, those analysts will watch to see how the stock-and-bond markets open this morning (Monday) as investors “vote” on whether the deal is a good one or not. A lot will depend upon what the so-called “experts” have to say about the long-term prospects of any deal (or non-deal) – and what strategies those experts tell investors to adopt:

Should they avoid “risky” equities at all costs and look to the “safe-haven” of commodities? And can you label the commodities sector as “safe” during a market in which oil can shoot up $25 a barrel in a single day? And what about money markets, which most investors view as the safest of investment plays: Are more money-market funds close to “breaking the buck,” a trend that threatens the most conservative of investors?

Congress seems more concerned about affixing blame than fixing the problem, so it’s little wonder that while there was a lot of finger pointing, few of our elected officials were analyzing their own roles in – and responsibilities for – this mess. There were no admissions of that one of the root causes was the lack of legislative oversight. Surely, the next Congress will seek to prevent similar calamities in the future and will rush to enact new (though not necessarily better) laws and regulations.

While everyone already realizes the economy is sluggish, this week will bring further confirmation through reports on labor (unemployment rate, non-farm payroll), manufacturing (ISM index, factory orders), and the U.S. consumer (income/spending, confidence). Some positive surprises sure would be nice.

Market Matters

Ah, the theater of politics…let the grandstanding begin. Apparently, when a U.S. treasury secretary, Federal Reserve chairman or even a president speaks, House Republicans (and a presidential candidate) don’t listen (especially in an election year). Throughout the week, Congress grilled the powers-that-be about the specifics of the $700 billion government bailout plan; at one point, they appeared to have reached an agreement by adding provisions on executive compensation and equity interest in those participating firms. But before the “I’s” were dotted and “T’s” crossed, disgruntled House of Representative members offered their own “insurance-based” plan (that, of course, included tax breaks), which U.S. Treasury Secretary Henry M. “Hank” Paulson Jr. and many banking experts called “unworkable.” U.S. Sen. John McCain, R-Ariz., (apparently now a renowned economist) appeared to have sided with this vocal minority, ceased campaigning, and even tried to reschedule the first presidential debate to focus on these matters (and to further pander to certain constituencies), while Sen. Barack Obama, D-Ill., preached “change”).

Meanwhile, U.S. Federal Reserve Chairman Ben S. Bernanke warned that inaction could lead to “recession, higher unemployment, and increased foreclosures.” Even global investing icon Warren Buffett, whose Berkshire Hathaway Corp. (BRK.A, BRK.B) just made a confidence-building, $5 billion investment in Goldman Sachs Group Inc. (GS), urged Congress to act now and said “he could understand the anger… but action was needed.”

While most people would agree that the bailout is far from an optimal solution, inaction could lead to the worst economic times since the Great Depression. Despite the politicizing, some form of a deal most likely will be passed (and just in time for Congress to hit the campaign trail). But it will take years to evaluate the plan’s effectiveness.

While much of the country focused on the bailout, the negative ramifications of the financial meltdown continued. Washington Mutual Inc. (WM) was taken over by the Federal Deposit Insurance Corp. (FDIC) and became the largest bank failure in history. WaMu’s assets were promptly sold to JP Morgan Chase & Co. (JPM), which jumped into first place in terms of domestic banking deposits.

Meanwhile, Goldman Sachs and Morgan Stanley (MS) moved beyond the old investment-banking model to become bank holding companies with the hope that their newfound abilities to accept deposits will improve both their liquidity and their overall operations (even with the increased regulatory oversight). Morgan Stanley also bolstered its balance sheet by selling a 20% interest to Japan’s Mitsubishi UFJ Financial Group Inc. (ADR: MTU), while its country counterpart, Nomura Holdings Inc. (ADR: NMR), bought the Asian operations of Lehman Brothers Holdings Inc.’s (OTC: LEHMQ) for $225 million.

General Electric Co. (GE) reduced its earnings expectations, ended its stock repurchase program, and hold its dividend steady through 2009, thus becoming another victim of the financial crisis. This will be the first time in 32 years that it won’t boost its dividend.

Instead of crawling out of bed this morning and heading straight to the coffee pot, I went straight for my filing cabinet. I had to check to see if my passport was still current and valid. After all, if I want to put my thumb on the pulse of the American economy I will have to head to Asia, especially Japan.

Tokyo’s banks and brokerage firms have been cutting checks as fast as they can sign them during the last day or so.

Most notably, Nomura Holdings bought Lehman Brother’s Asian, European, and Middle-Eastern operations. It got the strategic holding at an incredible price that will ensure the bank is competitive for decades.

Of course, its shareholders are not the only ones celebrating today. Mitsubishi Financial Group grabbed a 20% share of Morgan Stanley, making it a major player on Wall Street.

Finally, one of Japan’s largest banks, Sumitomo Mitsui Financial Group, is soaring in value as it is about to dump several billion yen into Goldman Sachs, giving Warren Buffet some company as he counts his new shares.

The Asian Invasion

If you thought Asia was slowly creeping into the American economy and taking much of our superiority away, just wait. Japan’s leverage was just increased multi-fold. These banks have cash (to the tune of $15 trillion), low exposure to the subprime mess (less than $8 billion in losses), and now have their hands on a vital part of Wall Street at incredibly low prices.

A lot of short-sighted investors are mumbling this morning, “So what, the Asian economy is just as slow if not slower than America’s.”

They may be right, for now. But what happens in five or ten years when the world is on top of its next bubble cycle?

Japan now has a lot more leverage on its side. For a country like the United States, that is about to expand its global debt to new heights and that depends on Asia for just about anything that is cheap, more power in the hands of our competitors is far from a good thing. It is a very, very bad thing.

The repercussions of this Wall Street collapse will not end once Washington hands over its blank check. That will be just the beginning. Lehman Brothers and its fallen brethren are gone forever and Asia now has a permanent and strong presence on Wall Street.

As an investor looking for opportunities, it is important to start concentrating overseas. There are some great opportunities created by this market turmoil. Keep your eye on the Asia markets and buy when the chance arrives.

There are profits to be had. You just have to know where to look.

Source: Asia invades Wall Street: Japan goes on a buying streak

U.S. markets sank yesterday (Tuesday) as a quick turnaround on the proposed bailout legislation seemed less and less likely as criticism for Paulson’s plan in its current form became more widespread.

At the New York close, all three major U.S. indices had reversed early morning gains to head into the red. The blue-chip Dow Jones Industrial Average Index posted a loss of 161.52 points (-1.47%), closing at 10,854.17. The tech-laden Nasdaq Composite Index dropped 25.64 points (-1.18%), to 2,153.34. And the broader Standard & Poor’s 500 Index lost 18.87 points (-1.56%), to settle at 1,188.22.

U.S. Treasury Secretary Henry Paulson and U.S. Federal Reserve Chairman Ben S. Bernanke both testified before Congress yesterday to urge lawmakers to quickly approve the proposed $700 billion government banking bailout plan.

The two financial pointmen of the bailout plan both testified in favor of the proposed legislation before the Senate Banking Committee. Paulson’s $700 billion bailout plan, unveiled over the weekend, has been criticized for the sweeping new powers it affords the Treasury department with little congressional or judiciary oversight.

Speaking of his plan to stabilize the financial markets, Paulson said, “We must do so in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families’ financial well-being, the viability of businesses both small and large, and the very health of our economy.”

Paulson went on to say that while the roots of the current financial crisis go back many years, the government must act now to save not only Wall Street, but Main Street as well. If left unchecked, the current financial crisis “would threaten all parts of our economy,” the Treasury Secretary said. In a rare departure from his prepared remarks, Bernanke urged Congress to not only pass the proposed bailout legislation in its current form, but to pay above market value for distressed financial assets.

“Accounting rules require banks to value many assets at something close to a very low fire-sale price rather than the hold-to-maturity price,” Bernanke said in his unscripted testimony before the Senate Banking Committee, Bloomberg News reported. “If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits.”

Bernanke said paying a premium for the bad assets that could no longer be sold on the open market would help “unfreeze” the credit markets and boost the U.S. economy.

Congressional Critics

But legislators seemed reluctant to rubber stamp Paulson’s barebones $700 billion bailout plan.

Many Democrats balked at granting such far-reaching powers to the Treasury Department without further Congressional or Judiciary oversight.

Senate Banking Committee Chairman Christopher Dodd, a Democrat from Connecticut, on Tuesday called the language in the plan “so troubling” and said it “cannot last” as part of the legislation, NPR reported.

One outspoken critic of the plan went so far as to take out a full-page ad in The New York Times likening Paulson’s plan to communism.

The ad shows Paulson, Bernanke and President George Bush raising a flag with the familiar communist symbols of a hammer and sickle with tombstones reading “private enterprise” and “capitalism” in the background.

“They are raising the new flag,” said Bill Perkins, the Houston-based venture capitalist who paid for the ad in a telephone interview with Reuters. “We’ve become a socialist-communist country in the form of trickle-down communism.”

Even some Republicans are voicing their opposition, calling for executive compensation caps for firms that benefit from the proposed plan. But the administration, along with Paulson and Bernanke are urging a speedy passage to the bill in its current form.

“I fully feel the urgency. But the truth is, we have to be given the time to do this right, or you’ll be up here in a year or two asking for another $100 billion or more,” Democratic Sen. Jon Tester of Montana told Paulson on Tuesday.

Wall Street Bargain Bonanza

While politicians and pundits debate the merits and flaws of the government’s proposed bailout, one foreign firm was taking decisive action to capitalize on the credit crisis.

Nomura Holdings Inc. (ADR: NMR), Japan’s second-largest bank, continued its buying spree of Lehman Brothers Holdings Inc. assets (OTC: LEHMQ) at rock-bottom prices. Nomura picked up Lehman’s Asia holdings on Monday and now can add Lehman’s Europe and Middle East operations to its list of acquisitions from the bankrupt Wall Street investment bank.

Nomura did not disclose the purchase price for Lehman’s equity and security operations, saying only the figure was “nominal.” After having paid just $225 million for Lehman’s Asia-Pacific holdings, it is all but certain Japan’s largest securities firm got a good deal in Europe as well.

]]> http://www.contrarianprofits.com/articles/credit-crisis-update-proposed-bailout-faces-opposition/5695/feed 0 http://www.contrarianprofits.com/articles/goldman-sachs-morgan-stanley-seek-fresh-start-as-holding-companies/5638 http://www.contrarianprofits.com/articles/goldman-sachs-morgan-stanley-seek-fresh-start-as-holding-companies/5638#comments Tue, 23 Sep 2008 19:35:05 +0000 Jason Simpkins http://www.contrarianprofits.com/articles/goldman-sachs-morgan-stanley-seek-fresh-start-as-holding-companies/5638 Goldman Sachs Group Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS), Wall Street’s last remaining investment banks, are converting to holding companies now that the collapse of The Bear Stearns Cos. Inc. and Lehman Bros. Holdings Inc. (OTC: LEHMQ) have drained clients and investors of any remaining confidence in the companies’ business models.

Both Goldman and Morgan received approval for the transition from the U.S. Federal Reserve Sunday night. The two companies can now offer Federal Deposit Insurance Corp. deposit insurance and gain access to cheaper more stable sources of funding via the Federal Reserve Bank Discount Window and customer deposits.

The trade off is increased regulatory oversight and slimmer profits, but both Morgan and Goldman felt the move was justified by the current market conditions. Bear Stearns…

]]> Goldman Sachs Group Inc. (NYSE:GS) and Morgan Stanley (NYSE:MS), Wall Street’s last remaining investment banks, are converting to holding companies now that the collapse of The Bear Stearns Cos. Inc. and Lehman Bros. Holdings Inc. (OTC: LEHMQ) have drained clients and investors of any remaining confidence in the companies’ business models.

Both Goldman and Morgan received approval for the transition from the U.S. Federal Reserve Sunday night. The two companies can now offer Federal Deposit Insurance Corp. deposit insurance and gain access to cheaper more stable sources of funding via the Federal Reserve Bank Discount Window and customer deposits.

The trade off is increased regulatory oversight and slimmer profits, but both Morgan and Goldman felt the move was justified by the current market conditions. Bear Stearns and Lehman Bros. collapsed entirely under the weight of subprime defaults and resulting credit crunch, and Merrill Lynch & Co. Inc. (MER) last week was all but forced into a merger with Bank of America Corp. (BAC).

The result was a panic on Wall Street that led investors and clients to abandon even the most secure investment banks.

“There’s blood in the water in the industry and the sharks are circling,” Peter Kovalski, who helps oversee about $10 billion at Alpine Woods Capital Investors LLC told Bloomberg News. “It all comes down to perception and the current trust within the community.”

Goldman Sachs, the largest and most profitable U.S. securities firm, will take its place behind Bank of America, JPMorgan Chase & Co. (JPM), and Citigroup Inc. (C) as the fourth-largest U.S. holding company.

“Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources,” Lloyd Blankfein, the company’s chairman and CEO, said in a statement.

“While accelerated by market sentiment, our decision to be regulated by the Federal Reserve is based on the recognition that such regulation provides its members with full prudential supervision and access to permanent liquidity and funding,” Blankfein added.

Goldman already has $20 billion in customer deposits in two subsidiaries and hopes to boost that amount to $150 billion through the creation of a third – GS Bank USA. Goldman will bolster its deposit base “through acquisitions and organically,” the company said.

Morgan Stanley, formerly the second biggest U.S. securities firm, had $36 billion of deposits and three million retail accounts at the end of August, Bloomberg reported. The company will also convert its Morgan Stanley Investment Bank, an industrial bank based in Utah, into a national bank.

“This new bank holding structure will ensure that Morgan Stanley is in the strongest possible position,” said company Chairman and Chief Executive Officer John Mack. “It also offers the marketplace certainty about the strength of our financial position and our access to funding.”

Of course, Morgan Stanley’s new structure also means the company will have to reevaluate its partnerships going forward.

“This means Morgan Stanley is reassessing its plan for a merger with [Wachovia Corp. (WB)],” Tony Plath, a finance professor at the University of North Carolina. “Morgan Stanley is going to try to go it alone, and I expect it will try to buy a bank with a market-to-book ratio that is next to nothing. It means they are walking away from Wachovia.”

Also, Mitusbishi UFJ Financial Group Inc. (ADR: MTU) yesterday (Monday) agreed to purchase a 10%-20% stake in Morgan Stanley for about $8.4 billion. MUFJ Chairman Ryosuke Tamakoshi said that his company would start due diligence on the stake before settling on a price, after last week saying he would shy away from making any immediate investment in U.S. banks.

“The purpose of the investment is to strengthen the investment banking business globally,” Hirokazu Ushio, a spokesman at Mitsubishi UFJ told Bloomberg.

A 20% stake would make Mitsubishi UFJ Morgan Stanley’s largest shareholder, which means a company representative will be appointed to the bank’s board.

Source: Goldman Sachs, Morgan Stanley Seek Fresh Start as Holding Companies

]]> http://www.contrarianprofits.com/articles/goldman-sachs-morgan-stanley-seek-fresh-start-as-holding-companies/5638/feed 1 http://www.contrarianprofits.com/articles/global-investing-roundups-tuesday-august-19-2008/4693 http://www.contrarianprofits.com/articles/global-investing-roundups-tuesday-august-19-2008/4693#comments Tue, 19 Aug 2008 14:12:59 +0000 William Patalon III http://www.contrarianprofits.com/articles/global-investing-roundups-tuesday-august-19-2008/4693 NAHB Holds Out Hope for Housing Market; Copper Golden for Chile; Lowe’s Sales Up; BHP Reports Record Annual Profit; Japan Bank Sweetens Bid; Airlines’ Labor Day Decline; Nymex’s Temporary Seat Sale Halt; Golden Gate’s Restaurant Order

 

• The National Association of Home Builders /Wells Fargo Housing Market index held at 16 in August for a second straight month, the group said yesterday (Monday) in a statement. Despite the weak reading, the NAHB said its members hope a recently enacted homebuyer tax credit would help the housing market regain some traction. “Builders are anticipating the stimulative effects of this legislation and are optimistic that the tax credit will give those buyers who’ve been sitting on the fence the reason they need to jump…

]]> NAHB Holds Out Hope for Housing Market; Copper Golden for Chile; Lowe’s Sales Up; BHP Reports Record Annual Profit; Japan Bank Sweetens Bid; Airlines’ Labor Day Decline; Nymex’s Temporary Seat Sale Halt; Golden Gate’s Restaurant Order

 

• The National Association of Home Builders /Wells Fargo Housing Market index held at 16 in August for a second straight month, the group said yesterday (Monday) in a statement. Despite the weak reading, the NAHB said its members hope a recently enacted homebuyer tax credit would help the housing market regain some traction. “Builders are anticipating the stimulative effects of this legislation and are optimistic that the tax credit will give those buyers who’ve been sitting on the fence the reason they need to jump back into the market,” NAHB President Sandy Dunn said in a statement.

• Copper sales surged 8.8% in the first seven months of the year over the same period a year prior, in Chile – the world’s largest copper producer. Chile’s central bank said copper sales totaled $25.06 billion through the end of July. Total exports reached $45.62 billion through July, The Associated Press reported.

• Lowe’s Cos. Inc. (LOW) reported fourth straight quarterly profit decline yesterday (Monday) as earnings fell 8% to $938 million. However, total sales actually rose 2.4% to $14.5 billion. The company said it now expects a full-year profit of $1.48 to $1.56 a share, compared to the $1.45 to $1.55 a share it forecast in May.

• BHP Billiton Ltd. (ADR: BHP), the world’s largest mining company, yesterday (Monday) reported record annual profit and said it expects demand for commodities to remain strong. Net profit for the year ended June 30 climbed 14.7% to $15.39 billion, from $13.42 billion in the previous year. Earnings before interest and tax, was $24.28 billion, up 21%.

• Mitsubishi UFJ Financial Group (ADR: MTU) yesterday (Monday) announced it had raised its bid for UnionBanCal Corp. (UB) to $73.50 per share, a total of $3.5 billion for the remaining minority stake. The sweetened offer represents a 17% increase from the initial $63 per share bid, which UnionBanCal advisors dismissed as too low, Reuters reported.

• The Air Transport Association of America predicted yesterday (Monday) that a combination of high rates and schedule cutbacks will combine to keep more travelers at home over the coming Labor Day holiday, BusinessWeek reported. The airline trade group estimates a 5.7% decline in airline passengers from Aug. 23 – Sept. 3 for the same period a year ago.

• The New York Mercantile Exchange, owned by Nymex Holdings Inc. (NMX), declared a temporary halt in the sale of seats (or trading rights) as its members meet to vote on a proposed merger with CME Group Inc. (CME). Sale of seats will be suspended between 3 p.m. EDT yesterday (Monday) and 9 a.m. EDT tomorrow (Wednesday), MarketWatch reported.

• Brinker International Inc. (EAT), parent company of Romano’s Macaroni Grill announced it would sell a majority stake to private-equity firm Golden Gate Capital Inc., The Phoenix Business Journal reported. “Golden Gate is well-known for partnering with corporations to help grow established consumer and retail brands,” Brinker Chairman and CEO Doug Brooks said in a release.

Source: Global Investing Roundups Tuesday, August 19, 2008

]]> http://www.contrarianprofits.com/articles/global-investing-roundups-tuesday-august-19-2008/4693/feed 0 http://www.contrarianprofits.com/articles/japanese-bank-bid-suffers-setback/4621 http://www.contrarianprofits.com/articles/japanese-bank-bid-suffers-setback/4621#comments Fri, 15 Aug 2008 16:50:34 +0000 Jennifer Yousfi http://www.contrarianprofits.com/articles/japanese-bank-bid-suffers-setback/4621 Mitsubishi UFJ Financial Group’s (ADR: MTU) $3 billion bid to obtain California’s UnionBanCal Corp. (UB) suffered a blow yesterday (Thursday) when a shareholder advisory committee determined the offer price was too low.

 

“The proposed price does not reflect the strength of UnionBanCal’s strong capital position, the superior credit quality of its assets, and its potential for profitable asset and core deposit growth in the current market environment,” Richard Farman, chairman of the special committee said, The Financial Times reported.

Soon after the $3 billion offer was announced, investors bid the share price higher. Shares closed at $65.46, yesterday, over $2 more than Mitsubishi’s offer price.

The $63-a-share offer, “is not in the best interest of UnionBanCal’s minority stockholders,” the bank said in a statement.

UnionBanCal’s…

]]> Mitsubishi UFJ Financial Group’s (ADR: MTU) $3 billion bid to obtain California’s UnionBanCal Corp. (UB) suffered a blow yesterday (Thursday) when a shareholder advisory committee determined the offer price was too low.

 

“The proposed price does not reflect the strength of UnionBanCal’s strong capital position, the superior credit quality of its assets, and its potential for profitable asset and core deposit growth in the current market environment,” Richard Farman, chairman of the special committee said, The Financial Times reported.

Soon after the $3 billion offer was announced, investors bid the share price higher. Shares closed at $65.46, yesterday, over $2 more than Mitsubishi’s offer price.

The $63-a-share offer, “is not in the best interest of UnionBanCal’s minority stockholders,” the bank said in a statement.

UnionBanCal’s majority stakeholder is, of course, Mitsubishi itself. The Japanese financial group currently controls 65% of UnionBanCal shares. Many analysts anticipate a higher bid as Mitsubishi seeks full control of its American investment.

“If Mitsubishi UFJ offers a little bit more, I think the deal will go through smoothly,” Edwin Merner, president of Tokyo-based Atlantis Investment Research Corp., told Bloomberg News. “Both Wells Fargo & Co. (WFC) and Bank of America Corp. (BAC), the other two big banks in California, will have to back off now for a while, so it’s a great chance for Mitsubishi UFJ.”

The advisory committee said it was opened to continued negotiations with Mitsubishi, lending weight to the theory that a sweeter offer might be all that’s needed to close the deal.

“It is pretty much standard form in the U.S. [to reject an offer]. Those independent directors have a legal obligation to protect the interests of minority shareholders,” Brett Hemsley, banking analyst at HSBC in Tokyo, told FT.

Hemsley went on to say that while a $68 per share offer might seem expensive, compared to the average share price of other beaten down American financial shares, many U.S. banks “have problems that Union Bank of California doesn’t have.”

Source: Japanese Bank Bid Suffers Setback

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